03/22/13: The US dollar index this past week showed signs of fatigue any time it pointed its nose above 83.00. As previously mentioned, 83-84 represents a significant battle zone for the index and its ultimate resolution ought to give investors a guide as to 'fear' vs. 'greed' expectations for the coming weeks and months ahead. Given this is Japanese fiscal year end, we may see trend resumption once on the other side of that event. Interestingly too, that event will mark the beginning of Q2''13 and we shall be given yet another brief glimpse at what fund managers are doing with their new capital. Elsewhere, the professor of economics (HG Copper) had something to say this past week. While still contained within a larger channel, Copper prices registered a weekly double top breakdown suggesting lower, not higher prices ahead. With that in mind I thought we ought to take a look at what is going on there in this week's WCTS Blog.
High Grade Copper (HG) Weekly & Monthly
HG Copper review: Here again we find another commodity perched at or near 10-15 year highs and threatening to break down in earnest - quite a re-occurring theme of late. Unlike other markets, HG Copper's general trend itself has broader implications. Also known as the professor of economics, Copper is such a key componatant in manufacturing (from housing to airplanes to automobiles) that its direction is often a great proxy for global economic output. Rising copper prices equates to booming economies; falling prices equates to contraction.
Fundamental review:
On balance, I find it incredible how only 10 years ago Copper prices traded in a nice $.50 to $1.50 range for the better part of thirty years. Only over the past decade has copper 'come to life' (as this chart illustrates: link). While I can understand a revision higher in price given the destruction of the base currencies' fundamental value (US$) unless there is continued strong demand, prices can easily fall from these lofty levels and fast! The 2000-2010 decade was dominated by the building out of China's economy. Will that trend continue? Has that trend already started to reverse? Chin's political structure has moved away from the growth-at-all-costs model and Chinese stocks are reflecting that. Europe itself is in self-destruct mode as we know austerity will cut GDP growth not help it. And here in North America we are facing a fiscal situation that like the Europeans lends support to contraction not economic expansion. Even from a short term perspective, whatever housing demand there is this summer has surly been bought by wholesalers by now, so when I put it all together I am not quite sure how this market can maintain such high levels let alone move to new highs from here. Once the seasonal window closes (sell in May and walk away) I personally would be especially leery of owning this commodity in particular.
Technical review:
Monthly (chart on the right above): Given the 'V' nature of the bottom in price from 2008, it shouldn't surprise anyone to expect a test of that low at some point down the road. While that big fat juicy target may be a little aggressive there are two significant downside targets that seem very realistic given the world's current fundamental situation. Should price move through the lows from October 2011, we will be setting up a monthly bearish ab=cd price pattern. The target on that pattern is about $2.50 and at the same time, there exists a nice little gap on the Monthly charts at that level too. The two together make for a compelling argument for that level to be traded to at some point in the future.
Weekly (chart on the left above): Here is a very interesting situation. Price just this past week broke down through the most recent low to register a new weekly double top price pattern (red channel). At the same time, price is also caught in another equally powerful bullish channel (blue channel). These two forces are at work at present and are making for a very interesting battle. Given the low liquidity of Japanese fiscal year end and the fact that we are coming up on the end of Q1'13 I am reluctant to get too bearish of this recent breakdown. I for one am willing to wait for the first two weeks of the coming quarter to get out of the way and let the market tell me if this price breakdown is for real or is just a head fake in an illiquid market. But make no mistake - things are brewing here...
Summery
The professor of economics is generally not happy and we should listen to what he is saying. Lower highs and lower lows define a bear market and this past week's price action gave us just that. Given the current global economic backdrop that expectation shouldn't come as too big of a surprise. Given too the current market's ill-liquidity in the face of Japan's fiscal year end (and what may lie just on the other side of that event) and the transition from Q1'13 to Q2'13, I for one shall be watching HG Copper over the coming weeks very closely to see if this breakdown is for real or just a head fake.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca/RI_Tradents.php#wctsspotlight
The Canadian Rational Investor
the_rational_investor@yahoo.com
http://www.therationalinvestor.ca/RI_Tradents.php#wctsspotlight
No comments:
Post a Comment